Even as it drags them under, Greeks cling to the euro

The markets are now, according to some calculations, pricing in a 75 per cent likelihood of Greece leaving the euro. Most analysts have been of this opinion for at least a year. I've so far resisted the consensus, but I'm beginning to feel the tiniest twinges of doubt.

Eurocrats who as recently as last week were committed to the survival of the euro in its present form are privately in despair. As Israeli officials used to say of the Palestinians, they find they have no one on the other side to negotiate with. Most Greeks have voted for parties which are committed to ending the loans-for-austerity deal with Brussels – though they cheerfully insist that they intend to remain in the euro.

To EU officials, their attitude is incomprehensible. Greece, as they see it, is issuing demands from a position of weakness, insulting its benefactors while simultaneously expecting them to offer better terms.

So far, though, I'd say that tactic has worked pretty well. At every turn, the EU and IMF have ponied up. No one in Brussels seriously expects Greece to honour its fiscal promises in full. Yet, time after time, new loans are extended.

Those who believe in an imminent Greek exit – or 'Grexit' as market analysts, with their addiction to jargon, call it – talk in terms of Greece being 'kicked out', as though the question of Greek membership were wholly up to the other 16 members. But that's not how currencies work. A country can declare any money it wants to be legal tender. Ecuador didn't need the permission of the US to adopt the dollar, nor Montenegro the permission of the EU to adopt the euro. The question of whether to revive the drachma, the world's oldest currency, is for Athens, not Brussels. And, so far, Athens has shown no such inclination. Neither the Greek central bank, nor any of the main parties, nor – bewilderingly – 77 per cent of Greeks favour leaving the monetary union that is the cause of their agonies.

Whenever I suggest to Greek colleagues that there might be advantages in a default-decouple-devalue strategy, they reply, not in terms of economics, but in terms of Greece's self-image. They cling to the euro as to a talisman, a symbol of Greece's European, rather than Levantine, orientation. This was, of course, the reasoning that led to Greek membership in the first place, despite the country having twice the permitted debt-to-GDP level. No one wants to talk about the economic consequences of the euro; for most Greeks, it was never about the economics.

If Greece doesn't opt to leave, what will the EU do? The only way for it to force Greece out of the euro is to make itself unpleasant. It could withdraw ECB support, triggering an immediate default on the rest of Greece's debt, but this would be precisely the kind of uncontrolled fission that it has been trying to avoid these past four years. And, even in such a scenario, it's not impossible that Greece would emerge from the rubble still chained to the euro.

Brussels can exert pressure in other ways, of course: diplomatic isolation, of the kind that was imposed on Austria when Jörg Haider was allowed into government; withdrawal of cohesion and structural funds. But there are legal difficulties with such steps, and Greece would have allies, not least Cyprus.

In any case, I don't detect any readiness on the part of the other countries to go down this road. If anything, Greece has been even more assertive that usual since the crisis struck on such issues as the name of Macedonia, the isolation of Turkish Cyprus and the EU's relationship with Ankara; the other members, though privately exasperated, are as accommodating as ever

There is another problem. As Danuta Hübner, the former Polish Commissioner, says during the debate below, Greece couldn't leave the euro and remain in the EU unless it negotiated an opt-out of the kind which Britain and Denmark have. This would require a treaty change and the unanimous agreement of the other 26 states. Is this really a route Eurocrats are ready to pursue?

This is not to say that a Grexit is impossible. The EU might just persuade Greece to pursue such a course amicably. (I'd love to be present when European leaders, in contradiction to their every public pronouncement these past 20 years, explain to the Greeks that a country might be better off suiting its monetary policy to its own needs.)

What is now almost certain, however, is a default on the remainder of Greece's debt. Greeks will then have the opportunity to leave the euro, price their way into the market and begin their slow recovery. Will they take it? We'll know soon enough.